FMCG, pharma funds in vogue as economy struggles

A broker smiles as he trades on his computer terminal at a stock brokerage firm in Mumbai December 31, 2009.

NEW DELHI (Reuters) - Indian equity funds focusing on consumer goods and healthcare companies topped the performance charts in April, and the country's struggling economy is set to drive more investors to the defensive sectors.

Growth in Asia's third largest economy has been slowing, fiscal and trade deficits have widened sharply and the inability of the government to push key reforms such as cutting subsidies and opening up the economy have dented investor confidence.

Still, in the country of more than 1.3 billion people demand is seen strong for daily use consumer goods like soaps, toiletries and food as well as pharmaceutical products.

"Consumption is on track and these sectors will continue to do very well," said T P Raman, managing director of Sundaram Mutual Fund. "All other sectors are impacted by one thing or the other."

Fast moving consumer goods (FMCG) funds gave an average return of 8 percent in April, shining for a second consecutive month, while healthcare funds chipped in 3.6 percent, data from fund tracker Lipper, a Thomson Reuters company, showed.

The SBI Magnum Sector Funds Umbrella-FMCG fund was the best performer, posting a 9 percent return in April.

The returns were better than the BSE FMCG index's 6.2 percent gain and the healthcare index's 2.6 percent rise in April.

Shares in ITC (ITC.NS), the largest cigarette maker in India, surged 8.2 percent in April, while the leading consumer goods maker Hindustan Unilever Ltd (HLL.NS) rose 1.8 percent.

Hindustan Unilever, which reported a 21 percent rise in quarterly net profit on Tuesday helped by higher volumes and prices, sees strong consumer demand continuing despite risk of input cost pressures and currency fluctuations.

In comparison, the BSE Sensex slipped 0.5 percent in April with investor sentiment undermined by regulatory risks and lack of clarity about budget proposals to tax foreign portfolio investments.

Standard & Poor's cut India rating outlook to negative from stable, reflecting the toll that hefty fiscal and current account deficits and political paralysis are exacting on the economy.

India is faltering as an investment destination because of significant policy mistakes and stock prices there will slide if the nation's credit rating is cut, Mark Mobius, one of the world's best-known emerging market investors, said on Tuesday.

DIVERSIFIED EQUITY, OTHER FUNDS

Diversified stock funds, the largest category of equity funds in India by number and assets, fell nearly 1 percent in April with their near 11 percent exposure to information technology (IT) weighing down, data showed.

IT funds showed an average 4.4 percent drop in returns, while the BSE IT index fell 6.2 percent, with Infosys (INFY.NS) plummeting 14 percent and Wipro (WIPR.NS) sliding 8 percent.

Financial services, which account for more than a fifth of such funds assets and is the fund managers' top bet according to Morningstar India data, posted small gains.

The BSE banking index rose 0.7 percent in April, with investors cautious about the outlook and banks reluctant to cut rates due to tight liquidity conditions after the Reserve Bank of India (RBI) slashed rates by 50 basis points.

Among other schemes, gold ETFs registered a rise of 2.8 percent as the yellow metal rose in April on the back of uncertain global economic outlook.

India gold futures hit a five-month high of 29,293 rupees per 10 grams on May 1.

(Reporting by Aditya Kalra, editing by Ranjit Gangadharan)